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In July, the WTO conducted its 6th review of China’s trade policies and practices. This post examines elements of the Trade Policy Review (TPR) that relate to China’s negotiations to join the WTO Government Procurement Agreement (GPA). It examines the value of China’s procurement in the context of the procurement that it has offered to cover under the GPA, and procurement that it excludes, as well as the consistency of its procurement regime with the GPA. In the TPR, WTO members encouraged China “to make further efforts to conclude” its GPA negotiations, which commenced at the end of 2007 when China submitted its initial offer.

According to the TPR, China’s government procurement rose in value from RMB 1.64 trillion in 2013 to RMB 1.73 trillion (approximately $260 billion) in 2014. China’s total procurement is less than the procurement covered under the GPA by the United States ($326 billion in 2009) or the European Union ($316 billion in 2012), according to their most recent reports to the WTO. Moreover, China has not offered to cover all of its procurement under the GPA.

Even though local governments accounted for 95.2% of the total value of China’s 2014 procurement – with only 4.8% attributed to the central government, China has offered to cover only 15 of its 22 provinces, plus its province-equivalent municipalities, under the GPA. Its latest GPA offer (December 2014) includes nine of its top 10 procuring provinces (Guangdong, Jiangsu, Shandong, Zhejiang, Henan, Anhui, Chongqing, Shanghai and Jiangxi). The only one missing is Guangxi. However, China would also delay coverage of three of those provinces (Jiangxi, Henan and Anhui) for three year after it enters the Agreement.

Of particular import is the fact that China’s procurement figures represent only a portion of its procurement. According to the TPR, they only cover procurement by government departments, institutions and public organizations using regular budget funds, for goods, construction and services listed in the Centralized Procurement Catalogue or above certain thresholds for procurement using other financial resources. This procurement must be conducted in accordance with China’s primary procurement law, its 2003 Government Procurement Law (GPL). Procurement that is outside the scope of the GPL does not count as government procurement.

The TPR noted that China’s 2014 government procurement statistics accounted for about 2.7% of its GDP – far less than the 10% to 15% of GDP that government procurement typically comprises. This substantial difference can be attributed, in particular, to two factors. First, China does not include procurement by its state-owned enterprises (SOEs) in its statistics because they are not required to follow the GPL. Second, according to the U.S. Trade Representative’s 2015 report on China’s compliance with the WTO, most public works projects, which represent at least one-half of China’s government procurement market, are also not covered by the GPL. SOEs and many public works projects are subject to China’s 2000 Tendering and Bidding Law.

Another element of the TPR that relates to China’s GPA accession is its procurement regime. Before China can join the GPA, it must bring its procurement laws, regulations and procedures into conformity with the GPA. The TPR noted that China implemented revisions of its GPL on October 31, 2014. In addition, the GPL’s implementing regulations entered into force on March 1, 2015.

While the GPL is in large measure aligned with the requirements of the procurement pact, it includes a domestic preference provision that is not consistent with the GPA. The GPL’s “buy-domestic” provision (Article 10) requires the Government to purchase domestic goods, services and construction projects, with certain exceptions:

when the required goods, services or construction projects are unavailable in China or, if available, cannot be procured on reasonable commercial terms;

when the goods, services or construction projects are procured for use abroad; or

when otherwise provided for by other laws and administrative regulations.

China did not modify this provision in the 2014 revision. It has also not specified what constitutes a domestic product. In 2010, China issued for public comment a draft “Administrative Measures for Government Procurement of Domestic Products”, which set out requirements for a product to qualify as a “domestic product”. The U.S. government and industry submitted comments on the draft, but it apparently has not yet been finalized.

The TPR also pointed to another domestic purchasing requirement in a Ministry of Finance regulation (MOF Order No. 18 of 2004), which requires suppliers participating in bids to be domestic suppliers and to supply domestic goods or services. China will have to modify these domestic purchasing requirements to exclude procurement covered under the GPA before it can become a GPA party.

China’s TPR will be completed when it replies to the more than 1,800 questions submitted by WTO members. Those questions and answers are expected to be available in about six weeks.